Is the IEA Now Telling Us That We Need More Oil for Longer? – Watts Up With That?

By Neil Atkinson

In its recent report “The Implications of Oil and Gas Field Decline Rates,” the International Energy Agency reminded us that hundreds of billions of dollars must be spent each year to keep global oil and gas output steady. This is the latest in a series of pivots by the IEA back to recognizing the importance of oil and gas in the long-term energy balance.

Notoriously, in its landmark 2021 report “Net Zero by 2050 – A Roadmap for the Global Energy Sector” the Agency suggested there would be no need for investments in new upstream oil and gas projects. The Agency was widely criticised, including by the National Center for Energy Analytics, for abandoning its Current Policies Scenario which most closely reflected today’s reality versus the aspirations of policy makers. In its upcoming World Energy Outlook 2025, the IEA will likely reinstate a CPS, and a reasonable assumption is that it will show oil demand as higher for longer, with important implications for future supply. Exxon Mobil and BP recently published outlooks showing oil demand staying close to 100 million barrels a day into the 2040s.

In recent years, there has been a lot of focus on clean energy investment. In its report “World Energy Investment 2025, the IEA reflected this it showed a 78% rise in spending from $1.2 trillion in 2015 to $2.2 trillion in 2025, with clean energy’s share of total energy investment rising from 45% in 2015 to 65% today. In the same time period, investment in upstream oil and gas fell by 35% from $869 billion in 2015 to only $567 billion in 2025.

All this spending on clean energy does not mean that we have seen much of an energy transition. In 2024, oil, coal and gas took nearly an 82% share of total global energy supply, down only slightly from the 85% level seen in 1974. The reality is that we are living in an “all of the above” energy world and we should be concerned by a fall in investment in upstream oil and gas at a time when demand is at record levels and climbing.

The challenges to more investment in upstream oil and gas are several: most importantly, field decline rates are accelerating. Observed annual decline rates for the world as a whole show post-peak production rates of decline averaging nearly 6%. Natural decline rates – defined by the IEA as what might happen if all upstream investment stopped today – show global oil production falling by 8% a year on average with this rate increasing in recent years. This is equivalent to losing about 5.6 million barrels day each year, roughly the current combined output of Brazil and Norway. For investment to stop completely is, of course, an extreme and unlikely scenario. However, it would not take much of a decline from current levels of upstream investment for production levels to potentially fall significantly as observed field decline rates accelerate.

Another important point the IEA makes is that the period between the issuing of an exploration licence and first commercial production is lengthening and is now 20 years on average; although there was a notable exception in Guyana where the Liza oil and gas field took only five years between the commencement of exploration to first production. If we are to ensure that more oil is produced in a timely fashion, there are many countries where this process needs to be speeded up.

For oil production to be maintained at current levels in 2050, the IEA believes that 45 million barrels a day are needed from new conventional oil fields. There will also be continued investment in unconventional resources such as shale oil. Even so, in the IEA’s words: “still, this leaves a large gap that would need to be filled by new conventional oil and gas projects….” Unfortunately, the wisdom of this statement is then marred by the next clause which says that “the amounts needed could be reduced if oil and gas demand were to come down.” True, but it’s wishful thinking!

With sentiment gradually shifting to recognizing the need for a bigger role for oil in the global energy balance, this report reminds us that a fast pick up in investment is needed to make up for ground lost in recent years. Unfortunately, many oil and gas companies lost sight of the energy reality and, partly under ESG pressures, pivoted away from their core business to sectors they knew little about. This report is also a reminder for oil and gas companies that theirs is far from being a sunset industry and they have a big future ahead. The IEA is telling us that we need more oil!

Neil Atkinson is an independent energy analyst, a former head of the IEA’s oil

industry and markets division and a visiting fellow at the National Center for Energy Analytics.

For a deeper dive into this topic, read NCEA’s issue brief on decline rates. 

This article was originally published by RealClearEnergy and made available via RealClearWire.